A SIPP is designed to help provide for my old age. So the more money I can amass in it while I am still of working age, the more useful my SIPP should ultimately prove to be.
Could I build a SIPP worth a million pounds before I retire?
I think so! Here are three practical steps I could take to try and achieve that goal.
Step 1: invest more
Over time, there are two factors that will determine the value of my pot.
One that gets a lot of attention is the return on my investments. But the other is more basic: how much I put into it.
Investing the odd hundred pounds here and there is not likely to get me anywhere near being a SIPP millionaire.
If I want to aim for that target, I need to consider how much I contribute now – and whether I am able to increase the amount.
Step 2: focus on the long term
What would be better for my nest egg – a share yielding 8% but with limited growth prospects, or one with no dividend but strong opportunities in an area likely to see explosive growth in decades to come?
For me, there is no single right answer. Not only do I want to invest in brilliant companies, but I want to make sure I do not overpay for their shares.
What is clear, however, is that the longer my investing timeframe, the more opportunities I have to take the long-term approach to buying and holding shares.
So, whereas Synthomer did well during the pandemic thanks to high demand for its rubber products (like gloves), the shares have since cooled off considerably.
By contrast, I expect demand for pensions to remain strong. That is one reason I own shares in pension specialist Legal & General.
Step 3: track progress towards the target
As I go, I have a clear indication of how I am performing. At any given moment, I can get a valuation for my SIPP.
Some people put money into a pension and invest it, simply hoping that somehow it will magically end up giving them the retirement pot of their dreams.
I think a smarter approach is to track progress as I go and adjust my course as appropriate. After all, I have decades left before I want to retire and draw down my money.
That gives me lots of time to assess how I am doing compared to my target and what adjustments I might need to make. That could involve increasing the size of my regular contributions. It might mean selling some shares and reinvesting the money in other ones I think look more attractive from a long-term investing perspective.
It may mean digging into the details of companies that had previously passed me by and assessing whether they are potentially a good fit for my investment objectives.
Making the right moves, I think I could end up with a million pound SIPP. Rather than push that into the future, I would start thinking about it — and acting on it — today!